Making Litigation Financing Support Justice

Litigation financing is an old concept that is gaining new attention and skepticism as more avenues of financing legal processes are taking hold within the United States court system. At its core, litigation financing is the process through which litigants obtain funding for their legal fees through a third party organization. Its implementation is broad across the legal field, as it is commonly used for both commercial and consumer cases. However, because of its increasingly diverse range of use, many have raised questions about its legality and ethicality. Some view litigation financing as simply another method of funding expensive legal processes, while others see it as an opportunity for unnecessary third party coercion, particularly by major corporations. However, when analyzing all the strengths and weaknesses of litigation financing, it becomes clear that it provides a mechanism for those formerly disadvantaged in the United States justice system to have strong financial and legal backing during the court process. As such, litigation financing should be limited in the United States to defendants who otherwise would be required to obtain a public defender.

Litigation financing was first widely adopted in Australia, then later gained traction in other countries around the world such as the UK and South Africa.[1] The United States is one of the more recent adopters of this system and is notably divided on the legality of litigation financing. Many states have already banned the process entirely. For example, in Kentucky, the case Boiling v. Prospect Funding Holdings LLC voided the litigation funding agreement in question and concluded that both champerty and usury laws overrode the legality of litigation funding.[2] In comparison, states like New York not only uphold litigation funding, but sometimes also allow citizens to enter a lawsuit without needing to disclose the amount of third party funding they are receiving. In Worldview Entertainment Holdings Inc. Woodrow, the court ruled that in instances where the funding of a case is not relevant to the claims of the case, there are no requirements to be transparent about the nature of funding.[3]

Despite the ununified response to litigation financing by the United States justice system, it is clear that a primary strength of litigation financing is that it assists those who are unable to financially support robust legal teams and would only be provided government resources like a public defender. Therefore, it is important to uphold litigation financing in situations where one party has a significant economic disadvantage. Historically, litigation financing has been the only way that some cases were able to succeed. NAACP vs. Button is a prime example. This case was addressing claims by a civil rights group of 1st and 14th Amendment violations. Initially, the NAACP was not able to provide financial assistance to the group facing racial injustice, but the Supreme Court struck down this law to allow the organization to financially back the process.[4] To date, the NAACP financially supports legal cases and works to minimize racial discrimination. Without litigation financing, however, this would not be possible. Beyond case examples, statistics surrounding the current inequities in the US justice system demonstrate the need for processes like litigation financing. Currently, 75% of all civil cases have at least one party that does not have a lawyer. Furthermore, around 80% of the legal needs of those below the federal poverty line in the United States are not met.[5] It has become clear that simply relying on government provided legal assistance has not successfully met the needs of many. This underscores the importance of preserving methods through which economically disadvantaged individuals can be financially supported through a case.

However, while there are clear advantages to using litigation financing through a need-based system, limitations should be placed on this process to limit its potential to be predatory and manipulative. Litigation financing should not be allowed in instances where both sides of a legal battle have suitable resources. In Miller UK Ltd. v. Caterpillar Inc, it was proven that doing so can have negative consequences. In this case, although there was no clear financial need by either party, Miller used litigation funding. The litigators for Miller entered the legal dispute and stood to gain millions for themselves if Miller won, even though they had no personal stake in the case.[6] In instances like these, a clear and problematic power dynamic in which major corporations can use the justice system as a means for profit and company growth. Introducing ulterior motives into a system aimed at discovering the truth and upholding fairness provides a pathway for some to take advantage of both individual people entering lawsuits and the goals of courts as a whole. Similarly, allowing litigation financing where it is not clearly needed allows litigators to take advantage of clients. In Huy Fong Foods, Inc. v. Underwood Ranches, LP, Underwood took the support of a third party financier to help him fight a legal battle against a major food company. In the end, although Underwood won a significant amount of money, the litigator took a much larger sum of the settlement than what was initially agreed upon.[7] This case is just one example that brings to light the potentially deceptive practices that can take place in litigation financing.

In conclusion, litigation financing has clear strengths, but regulations must quickly be put in place to ensure this financing method is used for ethical ends. Simple facts, such as ensuring clients are never in debt to litigators, large corporations are not entering lawsuits in which they have no stake, and third party litigations are not being used when no financial needs of the clients are present are good first steps in addressing this issue. The ways in which litigation financing can specifically be regulated are still to be determined, but understanding the ethical implications of its use is imperative to processing the true impact it has on the legal system. Litigation financing, if used correctly, can be a major step forward in leveling the playing field for people across the United States.

References

[1]Jarrett Lewis, “Third-Party Litigation Funding: A Boon or Bane to the Progress of Civil Justice?,” THE GEORGETOWN JOURNAL OF LEGAL ETHICS 33 (n.d.).

[2]“Christopher Boling v. Prospect Funding Holdings, LLC, No. 18-5599 (6th Cir. 2019),” Justia Law, accessed March 7, 2023, https://law.justia.com/cases/federal/appellate-courts/ca6/18-5599/18-5599-2019-04-25.html

[3]Marla Decker, “A New York Appellate Court Weighs in on Litigation Funding Disclosure: Relevance Is Paramount,” LAKE WHILLANS, December 15, 2022, https://lakewhillans.com/articles/a-new-york-appellate-court-weighs-in-on-litigation-funding-disclosure-relevance-is-paramount/.

[4]“NAACP v. Button, 371 U.S. 415 (1963),” Justia Law, accessed March 7, 2023, https://supreme.justia.com/cases/federal/us/371/415/.

[5]“Making Justice Equal,” Center for American Progress (blog), December 8, 2016, https://www.americanprogress.org/article/making-justice-equal/.

[6]“Miller UK Ltd. v. Caterpillar Inc., No. 10-Cv-03770 | Casetext Search + Citator,” accessed March 7, 2023, https://casetext.com/case/miller-uk-ltd-v-caterpillar-inc-5.

[7]“Huy Fong Foods, Inc. v. Underwood Ranches, LP,” Justia Law, accessed March 7, 2023, https://law.justia.com/cases/california/court-of-appeal/2021/b303096.html.